For 3QFY2014, Sun Pharmaceuticals Industries (Sun Pharma) posted results much ahead of our expectations. Sales came in at Rs.4,287cr (vs an expected Rs.3,700cr), posting a yoy growth of 50.3%. The growth was primarily led by exports, which rose by 61% yoy, while domestic formulations grew by 20.0% yoy. On the profitability front, the gross margin expanded by 136bp yoy to 81.7%, which aided the OPM to come in at 46.1% vs 44.2% in 3QFY2013, and higher than an expected 42.1%. Also, a higher other income during the period aided the net profit to come in at Rs.1,531cr (vs an expected Rs.1,054cr), a yoy growth of 73.7%. For FY2014 the company’s Management has raised its growth guidance from 25% to 29% (in constant currency). We are Neutral on the stock.

Better than expected results: Sun Pharma, for 3QFY2014, posted results much ahead of our expectations. Sales came in at Rs.4,287cr (vs an expected Rs.3,700cr), posting a yoy growth of 50.3%. The growth was primarily led by exports, which rose by 61% yoy, while domestic formulations grew by 20.0% yoy. The key region that drove exports growth was the US, which posted a growth of 79.2% yoy and a growth of 57% yoy in US$ terms. On the profitability front, the gross margin expanded by 136bp to end the period at 81.7%, which aided the OPM to come in at 46.1% vs 44.2% in 3QFY2013, and higher than our estimate of 42.1%. Also, a higher other income during the period aided the net profit to come in at Rs.1,531cr (vs an expected Rs.1,054cr), a yoy growth of 73.7%.

Outlook and valuation: Sun Pharma is one of the largest and fastest growing Indian pharmaceutical companies. We expect its net sales to post a 21.0% CAGR to Rs.16,450cr and EPS to post a 22.8% CAGR to Rs.25.2 over FY2013–15. On account of rich valuations, we recommend a Neutral stance on the stock.